The wireless handset market has proven that a strong brand name doesn’t guarantee success.
Sony Electronics Inc. announced last week it is pulling out of the North American handset business and terminating 200 jobs in San Diego. The well-known consumer electronics giant is one of several companies that couldn’t turn a profit in the highly competitive U.S. market, where handset makers are continually under pressure to lower prices and offer broad product lines.
Sony suffered from handset quality issues, lack of product and high turnover of its management team.
“It became more difficult for us to be competitive here,” said Susan Kwan, Sony spokeswoman.
The company’s problems were magnified late last year when it revealed it was contacting an estimated 60,000 dual-band Code Division Multiple Access phone users in the United States because some handsets had power settings in excess of the maximum level authorized by the Federal Communications Commission.
Kwan said this problem, combined with Sony’s delayed introduction of new products, affected profitability. The company canceled its introduction of an upgraded version of the CMZ100 Zuma pocket phone earlier this year. New President Tedao Cubodera believed there was no reason to introduce a competing product when the current version was selling well enough. Sony, however, planned to introduce by September a newer model of its Astra handset line, the CMSB200, a candy-bar shaped dual-band handset that was supposed to be 30-percent lighter than others in the same product line.
“Vendors need to have a full product line in order to survive,” said Phil Redman, senior analyst with The Yankee Group in Boston. “Carriers want a number of products for discounts.”
The need for vast product portfolios and competitive handset pricing has already proven to be too much for many handset vendors. Siemens Wireless Terminals pulled out of North America in the first quarter. Bosch Telecom Inc. in December closed its Dallas office for U.S. sales and marketing. Oki Telecom Inc. last summer ceased manufacturing, sales and marketing of all mobile phones in the United States. Mitsubishi Electric Corp. of Japan last year transferred its U.S. wireless telephone manufacturing assets to Solectron Corp. to reduce manufacturing costs, while Audiovox Corp. markets the handsets. A joint venture between Lucent Technologies Inc. and Royal Philips Electronics along with Northern Networks’ Matra Nortel Communications joint venture never introduced commercial products and folded because of losses.
“With fragmented standards in the U.S., it’s hard to get the scale you need without playing in all those standards,” said Matt Hoffman, analyst with Gartner Group’s Dataquest.
At this point, Kwan said Sony does not have plans to re-enter the North American market, though the company is keeping its research and development center in San Diego to work on third-generation technology.
“Wireless technology is indispensable for Sony to create a new IT-telecommunications world in the digital network era,” said Katsumi Ihara, president of Sony’s global Digital Telecommunications Co. in Tokyo. “Sony will continue its efforts to develop new products and technologies in this area, while supporting and reinforcing our current wireless business in Asia, Oceana and Europe.”
Sony said it also will continue to financially support its joint venture with Qualcomm Inc., Qualcomm Personal Electronics, in order to expand its knowledge of handset manufacturing. The arrangement, formed in 1994, was to give Sony knowledge of CDMA technology and Qualcomm experience in manufacturing handsets. In recent years, both companies have gone their own way with separately branded products.
People familiar with the joint venture say relations between Qualcomm and Sony have been strained, and though QPE remains intact, Qualcomm already has taken over the majority of production. Qualcomm said it welcomes the opportunity to increase its production of handsets even further.
Qualcomm, according to Gartner Group’s Dataquest research, grabbed second place in the U.S. digital handset market with 14.8-percent market share during the first quarter, while Sony took seventh with 6.6 percent.
Sony is providing information to affected employees regarding other job opportunities at the Sony Technology Center in San Diego. Sony has more than 25,000 employees in North America.
